Australia Post Wants To Charge More For Stamps Next Year. Here's Why It Has To Keep Letters Alive

(MENAFN- The Conversation) Remember back at the turn of the millennium, when sending a small letter only cost 45 cents? If you haven't used the postal service recently, you might be in for a rude shock.

Late last week, it was announced Australia Post had applied to the Australian Competition and Consumer Authority (ACCC) to increase the price of stamps.

If ultimately approved by Communications Minister Michelle Rowland, the current basic postage rate for a small letter, $1.50, will rise to $1.70 by mid-2025. Stamps for regular large and priority small letters will go from $2.20 up to $2.70.

There will still be a discounted option for seasonal greetings cards, which will remain at 65 cents.

If you're feeling a sense of déjà vu, that's because the last basic postage rate increase to $1.50 only just came into effect earlier this year.

Like physical cash, letters have arguably been in terminal decline. According to Australia Post, fewer than 3% of letters are now sent by individuals. The rest are overwhelmingly business and government communications.

But for some key groups, the“snail mail” remains a vital service. So why do we need to keep letters alive, and will increasing the price of stamps be enough to do so?

Read more: The government wants to keep cash alive for buying essentials. Here's why it's such a challenge for businesses

As a publicly owned organisation, Australia Post has a range of formal community service obligations (CSOs). These are enshrined in legislation – the Australian Postal Corporation Act 1989.

These CSOs were set up to ensure essential postal services are accessible and affordable to all Australians, including those in regional, rural and remote areas.

They include providing a universal access to a standard letter service at a uniform price across the country, as well as specific obligations on the frequency, range and speed of mail delivery.

Since 2015, Australia Post has been lobbying to reform its community service obligations to better align with changed consumer behaviour and needs.

That has led to some changes in what's expected, including a range of reforms implemented by the Australian government over the past year.

These have included reducing delivery frequency for letters and reallocating resources to parcel delivery, while still maintaining essential services in regional and remote areas and for special interest groups.

We are clearly in a broader transition to new CSOs – and a new role for Australia Post. Much of that comes down to the difficulty of delivering letters.

In the last financial year, Australia Post's letter volumes fell by almost 13%, which the company said led to a loss of $361.8 million.

But this is nothing new. From a peak in 2008, letter delivery volumes have been plummeting for more than a decade.

Australia Post says they're now at levels not seen since the 1950s. Remember, in 1955, the Australian population was only 9.2 million people.

Parallels with declining cash usage highlight our aversion to doing things with paper.

Cash use in Australia has also fallen to historic lows, forcing the government to step in with a plan to keep it alive for essentials .

A key conundrum is that we can't keep letters half-alive. For all Australians to be able post letters on a scheduled basis with fast delivery requires Australia Post to maintain a complete letter network across the entire nation.

The overall costs of operating this – while not specifically itemised publicly – include maintaining delivery routes and retail outlets, paying employee wages and investing in infrastructure.

Naturally, increasing the cost of sending letters will discourage businesses from doing so, shrinking the market ever more.

But because the size of the mail delivery network does not shrink proportionately, this can cause outsize problems for Australia Post.

Australia is not unique. Postal services around the world have felt similar pressures , many of which have diversified into parcel logistics and offering other digital services.

There are three core demographics in Australian society that still need to send and receive physical mail. These are:

• older Australians, particularly those who are less familiar with or have limited access to digital platforms

• residents of regional and remote areas with limited internet connectivity

• concessional users for whom discounted mail is the most affordable form of important communications.

At the very least, these groups all need to have a guaranteed ability to send and receive official information. That includes bank statements, legal notices, utility bills and government correspondence, such as electoral information.

Less critical, but still socially important and likely not to be terminated, is delivery of cards and letters for personal milestones, holidays or other events.

That puts Australia Post in a tricky position. It likely cannot maintain such large mail delivery infrastructure unless it does so at increasing losses.

That also reduces its ability to provide other, more relevant services and can blunt its competitiveness in the parcel delivery market.

For Australia Post, one solution may lie in leveraging its thriving parcels delivery network.

Given the essential user base for mail delivery is now so small, it makes sense for letters to be“special” delivery services, much as courier document services are now. Parcel home delivery resources could take this mail the last mile.

This would be much more expensive per item for Australia Post. But if the market continued to decrease in volume, it would minimise total costs.

It would also allow the government to provide a targeted subsidy if required.

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